A US cannabis brand-centric company is set to launch on the public markets in Canada through a reverse takeover (RTO) of a Canadian-based company.
Denver-based Dixie Brands announced on Monday (October 1) that it has completed a merger with a public shell corporation, Academy Explorations, to perform an RTO and gain a listing on the Canadian Securities Exchange (CSE) — a favorite destination for US pot companies.
Following the RTO, the company will be renamed to Dixie Brands (USA).
“By going public on the CSE, we’re investing in Dixie’s future for continued growth with a focus on quality, product innovation and scale,” Chuck Smith, CEO of Dixie Brands, said in a press release. Dixie will have to wait for approval from the CSE to list.
Documents from Academy Explorations show because Dixie raised a higher amount of capital through its Series C round of funding, the shell company expects “the exchange ratio applicable to shares, options and warrants under the Agreement will be higher than previously disclosed.”
Due to its laxed restrictions on US operations, the CSE has become the go-to exchange for companies operating assets in the US looking to capitalize on the rush for cannabis stocks seen in Canada.
Barrington Miller, director of listed company services for the CSE, told the Investing News Network (INN) the CSE made an early call to not block the listing of non licensed producer (LP) cannabis ventures.
US cannabis companies are able to join the CSE as the exchange only requests a risk disclosure each month for investors.
As cannabis remains an illegal substance on the federal level in the US, no company operating below the border has been able to join senior markets like the Toronto Stock Exchange (TSX).
Dixie currently operates in the states of Colorado, California, Nevada and Maryland. The company also disclosed it expects to have a presence in four-to-six new states in 2019.
To support this expansion, the company completed a series C funding which resulted in nearly US$25 million raised. Dixie indicated “positive investor demand” raised its original target of US$20 million for the funding.
With the Canadian listing, Dixie announced its intention to expand its business into Canada as well. “The financing round we have just closed will provide resources for Dixie to expand our brand throughout the US and into Canada,” Smith said.
Dixie touts its flagship product being an infused beverage with tetrahydrocannabinol (THC) called the Dixie Elixir. However, its entire portfolio shows a wide range of edibles such as infused chocolates, mints, gummies and tarts.
Infused beverages have become a novelty investment from cannabis companies in Canada and have even led to speculation about partnerships between producers and large players such as Diageo (NYSE:DEO) and The Coca-Cola Company (NYSE:KO).
Edible products will not become legal starting with the adult-use legalization in Canada on October 17. Health Canada, the country’s federal government arm tasked with regulating the use of the drug for consumers, has said these novel products will take a year after legalization to be approved.
A study from research firm the Marijuana Policy Group, and the University of Colorado Boulder, Leeds School of Business, business research division, found infused edibles in the state of Denver represented 4.9 percent of the cannabis product sold in Colorado in 2017.
As the growing sentiment on cannabis legalization continues more US companies look to Canada for new ways to raise money and fund operations.
Dixie’s additional announcement of pursuing the Canadian market marks an interesting direct approach from a US brand.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.